Kraft’s Hefty Dividend, Prospects Praised after Split-Up

By Avi Salzman

Kraft officially became two publicly traded companies after the close of trading on Monday, with one company called Kraft Foods Group (KRFT) consisting of the North American grocery business, and the other, called Mondeléz International (MDLZ), including global snack food brands.

So far this afternoon, KRFT is up 3.8% while Mondeléz is down about 0.7%.

Kraft’s biggest draw is probably its dividend yield — a tasty 4.5%. But Jefferies analystScott Mushkin thinks that there’s more to the stock, even though it’s in a slower-growing market than Mondeléz. He initiated coverage at Buy.

“Indeed, Kraft’s long term mid-to-high single digit EPS growth target appears quite attainable due to management’s simple, yet effective strategy of marrying a ‘good, better, best’ brand positioning and focus on improving operational efficiencies to financial goals of driving higher ROIC and cash generation. This should result, we believe, in better than expected rev. and EBITDA $ generation over time, helping propel both EPS as well as further increases in the already substantial $2.00 dividend.”

That said, Barron’s Andrew Bary noted this weekend that the stock is trading at about 17 times 2013 earnings estimates, which seems rich compared to competitors like General Mills (GIS) and Kellogg (K), which trade between 14 and 16 times.

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